How to make sense of the rise in the volatility index

The volatility index (^VIX) has seen some major movements this week, spiking on Monday amid a large global sell-off. Can the market stabilize or is it due for more volatility?

Ballast Rock Private Wealth senior wealth advisor & portfolio manager Jim Carroll joins Catalysts to give insight into the volatility index and what that means for investors moving forward.

To get out of this volatility Carroll says: "We'd like to see VIX get down below 20. We'd like to see the equity indices continue to heal and move back higher as they are this morning. But you know investors were shocked by this. And I think many of them are going to be tentative getting back in."

He goes on to argue: "Volatility does create opportunity because if you like the S&P at its July 16th high, then why wouldn't you like it better where it is now? And I think it goes to time frame. If you have patience, if you're a long-term investor and if you are blessed to have cash to put to work in an environment like this, these can be seen as opportunities to put some of that money to work for the long run."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino

Video Transcript

A record spike in the VICS rocked Wall Street this week.

The volatility index known as the Fear Gauge recorded its biggest one day jump on record closing at the highest level that we've seen since October 2020.

The catalyst rising recession fears in a massive unwind of short positions, more than $4 billion was erased from 10 of the largest short volatility ETS from their highs.

We want to bring in volatility expert Jim Carroll, he's a senior wealth advisor and portfolio manager at the last Rock Jim.

It's, it's great to have you here.

So talk to us about the moves that we've seen specifically in the VICS over the last several trading days, we had the massive spike to start the week here we are today, right around 24 is this may be comforting.

Should investors be looking at the massive pullback that we have seen as maybe a telltale sign that things are going to calm down or on the cusp of coming down shortly?

Well, I think first we have to look at the shock that happened uh really prior to the opening on Monday when we got up near 66 for the vics because that was, uh, a bit of an aberration.

Uh, all of my, uh, acquaintances inside the options world, uh, are telling me that, uh, things went haywire Monday morning before the open and that, that print, uh, was outside of any reasonable expectation.

And you could see that in what the vic's futures were actually doing.

So, we have to take 66 with a grain of salt.

We're back down around 25.

That's good news.

Uh, but it's not necessarily telling us that we're out of the woods yet, Jim, what would tell us that we're out of the woods?

Well, we look at Vick's 20 as, as a bit of a bright line.

Nothing's ever completely a bright line.

Uh, but we'd like to see vs get down below 20.

Uh, we'd like to see, uh, the equity indices continue to heal and move back higher as they are this morning.

Um, but, you know, investors, uh, were shocked by this and I think many of them are gonna be tentative getting back in.

It's interesting though because the vic spikes typically lead to stronger forward six months returns, particularly when it's in the range that we saw on Monday.

How long would you anticipate the upside for the vics lasting here?

Is six months a comfortable range for you or would you say even longer than that potentially?

Well, uh, there are a lot of things going on in the macro background.

And uh what happened, uh Thursday, Friday and Monday was triggered by, you know, a number of unwinds.

Um I think looking forward we have a presidential election that's going to dictate a lot of what the economy and the markets look like.

Um, but I certainly think we're going to get some clear indications even sooner, even in the next several weeks or, or a month.

Um, about, you know, how the market's digesting this.

And Jim, I find it fascinating the uh market sentiment around these moves because just a couple of months ago, I was having a source coffee with someone who couldn't stop talking about how annoying it was that the V was so low and how that was indicative of market concentration.

Now it's high and people are upset about that too.

What gives with, there's, there's nothing that makes people happy right now.

Well, II I think that's a classic, right?

Um What, what with in, in vic's circles when uh when it's trading the way it was, it was stuck between sort of 11.5 and 14 for, for probably close to three months.

And um you know what, what we say is it's quiet, too quiet.

Um And then sooner or later it will uh come out of that range and we did see it come out of that range.

So, no, you can't make everybody happy in either direction.

There are people who like a higher level of volatility because it creates trading opportunities.

But for the average investor, you know, they would like to see volatility come back down.

They'd like to see uh uh you know, ranges for the S and P and the other equity indices that look more normal.

Jim real quick.

You mentioned that many investors hate volatility, but maybe there could be some opportunity.

What does that opportunity look like?

Well, again, um volatility does create opportunity because if you like the S and P at uh it's July 16th high, uh then why wouldn't you like it better where it is now?

And I think it goes to time frame if you have patience, if you're a long term investor and if you are blessed to have cash to put, to work in an environment like this, uh these, these can be seen as opportunities to put some of that money work for the long run.

Um If you're a trader, uh it could be a short term opportunity.

So volatility does create opportunities.

Unfortunately, it scares people into, into uh you know, kind of a bomb shelter mentality.

They don't want to do anything until things sort themselves out.

And at that point, some of the opportunity is gone.

All right, Jim, we're gonna have to leave it there.

I really appreciate you joining us on all things volatility.

Thank you so much.

That was Jim Carroll.

He's ballast rocks private wealth, uh senior wealth advisor and portfolio manager.